IMF calls on Australia to raise the GST, bring back mining tax, cut back on NDIS

The IMF has called on Australia to increase the GST, bring back the mining tax and cut back the NDIS to sustainably fund more income tax relief and help struggling states, as it issued a fresh warning about mortgage debt and a chronic undersupply of housing.

With Australian government spending at the highest level since 1986, outside of COVID, the International Monetary Fund said boosting weak economic growth would require “comprehensive tax reform and greater spending efficiency”.

This would include raising the Goods and Services Tax from the existing level of 10 per cent. The level hasn’t changed since it debuted in July 2000 despite New Zealand having a higher 15 per cent rate and Australia having one of the world’s lowest consumption tax rates.

The IMF also called for the reintroduction of the mining tax that was scrapped in 2014. Then Liberal prime minister Tony Abbott had earlier won a landslide election victory campaigning against the Labor Party’s Mineral Resources Rent Tax introduced by Julia Gillard after she overthrew Kevin Rudd in a leadership coup.

The Washington-based group also argued a higher GST and a revived mining tax could fund more income tax relief and a cut to Australia’s 30 per cent company rate that applies to big business.

“An increase in indirect taxation, the reintroduction of a resource revenue tax, and removing income tax exemptions could offset lower corporate and labour taxes, thereby lowering the cost of capital and increasing incentives for investment and work,” the IMF said.

The IMF’s mission statement on Australia also recommended pruning the NDIS, even though Prime Minister Anthony Albanese’s government is already moving to remove autistic children from the program.

“Expenditure reforms should continue to target efficiency savings in growing cost areas (such as NDIS and aged care), and protect productive infrastructure investment,” it said.

Australia delivered a $10 billion deficit for 2024-25, which was $17.6 billion better than forecast in the pre-election March Budget, as iron ore prices held up instead of plunging.

But government spending made up 26.2 per cent of gross domestic product which outside of COVID was the highest since 1986.

“The Commonwealth’s fiscal strategy has been effective over the post-pandemic period, but if structural spending pressures intensify in the future, clearer fiscal anchors could help to safeguard fiscal sustainability,” the IMF said.

Nonetheless, Treasurer Jim Chalmers seized on the report praising Australia for “managing a soft landing amid global uncertainty”.

“The International Monetary Fund has today backed Australia’s budget and fiscal strategy at a time of global uncertainty,” he said.

Mortgage debt warning

The IMF also noted recent Reserve Bank of Australia rate cuts were turbocharging the housing market, and called for a review of the existing mortgage stress test requiring lenders to assess a potential borrower’s ability to cope with a three-percentage point increase in variable mortgage rates.

House prices are already growing at a faster pace since the October 1 introduction of the 5 per cent Deposit Scheme for all first-home buyers without income limits.

“As financial conditions ease and housing prices rebound—further stretching valuations against income—vulnerabilities may arise from potential weakening in lending standards and excessive buildup of household debt,” it said.

“While current macroprudential policies support stability, regulators must stay vigilant and be prepared to tighten measures, such as pre-emptively activating additional borrower-based limits, in response to evolving vulnerabilities.”

The inability of builders to keep pace with immigration-fuelled population growth has also sparked a warning about Australia’s housing shortage, blaming local councils for holding up planning approvals. More than 300,000 migrants, on a net basis, are moving to Australia every year, down from record-high levels of 550,000 in 2023 but still above pre-pandemic levels of 200,000.

“Although cyclical pressures have eased somewhat, as population growth slowed and dwelling investment picked up, Australia’s housing imbalance persists due to long-standing challenges including some skilled labor shortages, expensive land, low construction productivity, and complex regulations and approval processes,” it said.

The IMF also called for stated-based stamp duties to be replaced with an annual land tax and questioned the wisdom of the Federal Government’s 50 per cent capital gains tax discount allowing property investors to only have to declare half the price rise on their tax return.

“As part of a comprehensive tax reform, a shift away from stamp duties to recurring property taxes at the state and territory government level can be considered to promote more efficient use of land and existing housing stock, and tax arrangements that affect housing demand and investment can be reviewed with potential savings redirected toward supporting new housing supply,” it said.

State of finances

The Federal Government maintains a AAA credit rating, but not all the states have that score, making it harder for them to borrow more money without having to pay a higher interest bill to cope with a population influx.

“Rising state and territory debt, driven by increased infrastructure, health and social protection spending and exacerbated by uneven commodity revenues, has caused missed sub-national fiscal targets and widening disparities,” the IMF said.

“Fiscal coordination across the federation is crucial to ensure equitable burden‑sharing and efficient spending, especially in areas like climate governance and tax reform.”

Economic growth across Australia was uneven in 2024-25 with new government data showing Queensland had gross state product (GSP) growth of 2.2 per cent. This was more double the pace during the last financial year in NSW, Victoria, South Australia and Tasmania. Even mining-rich Western Australia was relatively weak with growth of 1.3 per cent.

GSP went backwards federally and in every state except Queensland and Tasmania.

Australia’s chronically weak productivity growth during the past decade was also slammed, with the 0.2 per cent level during the last financial year a far cry from the 2.1 per cent annual average from the 1990s to the mid-2000s.

“While labor productivity growth has slowed across several advanced economies, Australia has experienced a particularly pronounced decline in labor productivity,” the IMF said.